The U.S. economic expansion is currently the third longest, out of 12, since WWII—and also the third longest out of the last 33, covering all the cycles identified by the National Bureau of Economic Research since 1850. But just because it is old does not mean it is set to die.
“We are certainly not forecasting a recession this year,” says HFE’s Chief U.S. Economist Jim O’Sullivan. “Or in 2018.”
The expansion won’t last forever, though, and recessions over the last few decades have invariably followed Fed tightening cycles. Of course, recessions are not inevitable after Fed tightening—after tightening started in 1994, the expansion lasted another seven years. “Policy typically has to become quite tight, not just tighter than it was, before recessions kick in,” explains O’Sullivan.
Nonetheless, the more the unemployment rate falls and the more the Fed has to tighten in the next two years, the higher the probability you should put on there being a recession before the next presidential election. “You don’t want to have high equity market exposure when the next recession starts,” says O’Sullivan.
The longest U.S. expansion on record is 120 months, running from 1991 to 2001. To surpass that mark, the current expansion, which started in June 2009, would have to last until the summer of 2019.